Growth in U.S. May Accelerate Even as Europe Shrinks

Growth in U.S. May Accelerate Even as Europe Shrinks
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Growth in U.S. May Accelerate Even as Europe ShrinksRising confidence, fewer firings and gains in holiday sales show the U.S. economy is picking up, defying a slowdown in Europe and much of the rest of the world.

The divergence will become even starker in 2012 as the world’s largest economy accelerates, the 17-member euro area sinks into a recession and growth in emerging markets cools, according to economists likeMaury Harris of UBS Securities LLC and Barclays Capital Inc.’s Dean Maki.

“There is a sense of decoupling,” said Harris, chief economist at UBS Securities in New York, whose team was the most accurate iecb-twirl.jpgn forecasting the U.S. economy in the two years through September. “We can still have a decent year here in the U.S. even with the rest of the world slowing down.”

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An improving job market and freer credit may underpin American household sentiment and spending just as the debt crisis in Europe prompts additional belt-tightening overseas. Stabilization in housing will erase a source of weakness at the same time vehicle replacement demand benefits companies like General Motors Co. (GM)

Stocks fell on concern over Spain’s budget deficit. The Standard & Poor’s 500 Index dropped 0.2 percent to 1,261.16 at 9:41 a.m. in New York. The benchmark equity gauge is little changed this year.

Investors have been less kind to European equities. The Stoxx Europe 600 Index dropped almost 12 percent in 2011 as the debt crisis spread across the major economies of the euro area.

China and U.K.

Among reports today, manufacturing in China contracted in December for a second month as Europe’s debt crisis slowed export demand. The euro area’s crisis is crimping housing and growth in the U.K. as well, with the average cost of a home dropping 0.2 percent in December, the first monthly decline since August, the Swindon, England-based Nationwide Building Society said in an e-mail.

The extension of a tax cut through February is one reason economists are turning more optimistic on U.S. prospects. The economy will grow 2.5 percent in 2012, up from a prior estimate of 1.9 percent, according to a revised forecast issued on Dec. 23 by Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. The new estimate was based on the assumption that lawmakers will agree to retain the tax break for all of next year, he said in a research note.

JPMorgan projects the combined economies of the countries in the euro area will shrink 0.7 percent next year.

Fewer Jobless Claims

Another reason for optimism is a decrease in firings by U.S. companies that may portend a pickup in hiring in early 2012. Fewer Americans filed applications for jobless benefits in the four weeks through Dec. 24 than at any time since June 2008, according to figures yesterday from the Labor Department.

Less joblessness, rebounding stocks and falling gasoline prices are helping boost confidence. The Bloomberg Consumer Comfort Index reached a five-month high in December.

“We can tell that something is clicking if jobless claims are down and confidence is up,” said UBS’s Harris, who projects the U.S. economy will grow 2.1 percent in 2012.

Maki, chief U.S. economist at Barclays Capital in New York, forecasts 2.5 percent growth next year, up from 1.7 percent in 2011. The euro region will contract 0.2 percent after expanding 1.5 percent, he said.

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